IVA Information: the Advantages and Disadvantages

IVA Information: the Advantages and Disadvantages

Individual Voluntary Arrangements (also known in Scotland as "Protected Trust Deeds") can be robust tools to change the balance of power from the creditor to the debtor. You can expect to be put under aggressive pressure by creditors to pay back the debt, including the threat of legal action, yet at the same time they will continue to add penalty charges to the existing debt, an IVA can halt this action.When it comes to an IVA, the upsides do outnumber the downsides, yet you as the debtor should be aware of the negative effects an IVA could have, as it's also possible an IVA is not the best debt solution, the upfront costs of setting up an IVA can be quite expensive. Depending on the debtors' circumstances, other debt plans (or even bankruptcy) might be more favourable than an IVA, so it's best to talk to a qualified adviser to see which option is the best to decide on.Let's begin with the upsides of agreeing to an IVA, it is a lasting solution to a persistent debt struggle, either the agreed sum is paid off or once the five years have concluded (an IVA can only last five years max), the lingering debt is wiped by the creditors. If the IVA is to be accepted, a majority of the creditors that totals 75% of the debt must agree, if 25% resist then there is nothing they can do to obstruct the IVA becoming live. An important plus point to remember is it's a legally binding contract between the debtor and creditor; they cannot demand more money off the debtor or demand an increase in your monthly repayments, which they could ask for under a Debt Management Plan (they should not be contacting the debtor anyway, instead going through the IVA Practitioner who is acting as your administrator). Another of the major bonuses of an IVA is it will bring your overall monthly outgoings down, as the monthly IVA repayments are calculated to be at an affordable level so you have enough money to pay the essentials every month (mortgages, groceries, utilities etc).An IVA allows for the protection of certain assets, excluding them outside the IVA, one popular asset to exclude is the family home for instance. Therefore if the IVA were to be unsuccessful for any reason, the excluded assets could not be seized under any resulting legal proceedings. Don't worry if you are self employed, the IVA extends to your company also, if you're not working the creditors won't get there debt back, it's in their interest that your business is unimpeded, under bankruptcy this would not be possible. Some professions have limitations on bankrupt persons working (for example limited companies cannot have directors who have been declared bankrupt); an IVA does not make these impositions. An IVA also means you do not have to announce your bankruptcy to your employer and it will not be announced in the local press either. To wrap up, an IVA offers privacy a bankruptcy never would, partly because of this the stigma that surrounds going into bankruptcy does not taint an IVA, which can give some deserved peace of mind knowing you have paid as much of your debt as you could within the five years and be full of pride by that fact.Now for the negatives, many of the positives already mentioned have flip sides you should be aware of, the first fact to consider is that while you might feel relieved the creditors are restrained, you are also restrained in some of your activities. If the debtor fails to keep to the agreement, in most cases this will somehow involve the repayment plan, the IVA can be declared void by the practitioner or one of the creditors, resulting in bankruptcy for the debtor. The repayment plan, as stated earlier, is intended to help make it easier to live each month, despite this the payment plans are very rigid and can only be changed under extreme circumstances; they cannot be changed easily. Make no mistake the payments will leave you with very little spare cash as you are still expected to pay back as much as you can each month, even if your income increases due to a new job for example, your payments will also increase to take this into account.The IVA practitioner will know of any income increases is the next downside to an IVA agreement, as is the obligation to submit to annual reviews by the IVA practitioner, the debtor will have to keep records and all financial statements will be reviewed. Failure to fulfil this can invalidate the IVA as it is compulsory under almost all IVA's. It goes without saying, but an IVA will be a black cloud over your credit rating, it will stay on your credit report for the length of the IVA and will stay on your credit rating for the first year after the IVA has ended. For this reason, attaining credit can be difficult to nigh on impossible in the medium term after the IVA has ended, during the IVA, attempting to get credit over 500 has to be authorised by the practitioner and that's very unlikely to happen. Any unofficial credit taken on will also infringe the IVA.While you can exclude your house from the IVA, the creditors would have to assent, if they do, in return the IVA might demand the debtor to release a portion of the equity from the house. Usual practice would mean the equity would not need to be released from the house till approximately the third or fourth year of the IVA. To conclude the negatives a simple reflection, an IVA lasts longer than bankruptcy would, bankruptcy usually lasts a year compared to an IVA's five year plan.

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